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Cost of Brexit: The impact on business and the economy so far

The pound suffered its biggest one-day fall against the dollar on record on the night of the decision, as currency traders bet that leaving the EU would impose a long-term and permanent economic cost on Britain: Reuters

Brexit negotiations have yet to begin but already the prospect of the UK splitting from the rest of the European Union has roiled the world of business, sending shockwaves through a slew of sectors.

Thousands of jobs look set to move and while it’s impossible to attach a price tag to Brexit, industry bodies, consultants, economists and accountants have already published dozens of reports on the possible impact of new tariffs and a restriction on the movement of people.

Here’s an overview of what we know.

The broader economy

The most dramatic and salient economic impact of the Brexit decision came on the night of the decision itself. The pound suffered its biggest one-day fall against the dollar on record as currency traders bet that leaving the EU would impose a long-term and permanent economic cost on Britain.

Despite an uptick over the last week, the pound remains some 14 per cent below its level on 23 June last year. While the depreciation is a benefit for UK exporters it also means the cost of imports has soared, which is the reason domestic inflation is now rising faster than workers’ pay, imposing a fresh squeeze on living standards.

Business investment has also suffered since the Brexit referendum, as firms have been affected by a cloud of uncertainty that has descended over the UK’s future trade arrangements with the rest of the EU – and the associate threat of tariffs and customs barriers. Investment fell by 0.9 per cent in the final quarter of last year, contributing to the first calendar year decline since 2009.

According to the Bank of England, the level of business investment is expected to be around 25 per cent lower by 2019 relative to its pre-referendum forecasts, damaging our future productivity growth.

The British consumer proved surprisingly resilient after the referendum – a resilience that was responsible for the fact that GDP growth carried on robustly and the UK avoided a recession. But there are now distinct signs of shoppers running out of steam as inflation bites.

Retail sales, a crucial component of consumption, fell by 1.4 per cent in the first quarter of 2017, the biggest quarterly fall since 2010, and many economists expect this to get worse as the year progresses.

Banking and financial services

At the World Economic Forum in Davos this January, UBS Chairman Axel Weber said that about 1,000 of the Swiss bank’s 5,000 employees in London could be affected by Brexit, and HSBC chief executive Stuart Gulliver said his bank will relocate staff responsible for generating around a fifth of its UK-based trading revenue to Paris.

Goldman Sachs’ Europe chief executive, Richard Gnodde, said in March that the US bank would relocate hundreds of staff out of London even before any Brexit deal is struck, as part of its contingency plans. The company currently employs around 6,000 people in London.

Other banks and insurance companies have said that they will be opening European subsidiaries, but while such a move will likely incur additional costs, it won’t necessarily mean job moves in every case.

Auto industry

The number of cars built in the UK hit a 17-year high last year and more cars are being exported from Britain than ever before, but a failure to establish proper trade deals after Brexit could damage the industry “beyond repair”, the Society of Motor Manufacturers and Traders warned back in January.

Generally, because of the car industry’s global exposure and its dependence on workers from abroad, it is considered one of the sectors most vulnerable to a hard Brexit.

In fact, Britain moving to a World Trade Organisation regime after Brexit could lead to the introduction of a 10 per cent tariff on finished vehicles and a 4.5 per cent tariff on component parts for cars.

In March a research study done by PA Consulting showed that if manufacturers pass that cost directly on to customers – and taking all the stages of production into account – the price tag for a new vehicle could soar by as much as £2,372 per car.

Construction and manufacturing

Like the car industry, the global nature of the construction and manufacturing sector stands to lose a lot, especially if Brexit restricts the free movement of labour.

Food and drinks

More than half of the food we eat in the UK comes from abroad, meaning that the post-Brexit fall in the pound has been squeezing the food and drink industry since the pound started sliding in June. Suppliers have seen their costs jump and a lot of that is being passed on to consumers as supermarkets aim to keep prices as low as possible to protect profits.

Last year, that tension resulted in a public spat between Tesco and Unilever. Britain’s biggest supermarket refused to accept price rises on hundreds of Unilever products, causing Marmite to become a symbol of the industry battle over price increases. Mondelez’s Cadbury products, Nestlé’s Nescafé, Premier Foods, the maker of Mr Kipling and Bisto gravy, have since all hiked prices or said they were considering doing so.

Ufi Ibrahim, the head of the British Hospitality Association (BHA) warned in March that restaurants in the UK will need a decade to replace their EU staff with British employees after Brexit. The director of human resources at Pret a Manger told a parliamentary committee in March that only one in 50 job applications she receives is from British nationals meaning that the business will struggle to attract staff if immigration controls are implemented.